Monday, January 21, 2013

The Envelope System

Nathan and I have been married now for over three years, and I'm sure everyone who is married can say that money/spending is one of the hardest things that will always come up. We definitely have our struggles with finding what is fair and balanced and last year we came up with a strategy that has finally worked for us. Last year we moved to what I've heard as the 'Envelope System' and now I cant imagine doing our finances any other way because of how well it works and keeps us on track!

What is it?
The Envelope System is as simple as it sounds. You create your budget, withdraw cash for each category you can pay in cash for (I only leave money in our account for bills I can pay online), and then input each cash amount into separate envelopes. This will work the best if you plan out each pay check down to the penny.

Creating my budget
When I first started, I had no idea what my budget looked like. I had a general idea about how much we spent on basics like gas and groceries but I needed something more concrete. I used the website Mint.com and it help me categorize all my debit transactions to see how much I averaged on my spending each month. It also helped me see where we spent WAY too much money, like eating out (we are really good at this part).

How it works1.Create your budget and write it down. I use a dry erase board and each time a bill gets paid or we take our cash out I mark off our progress for that month.

2.Withdraw money the day you get paid. When you get paid, the very same day go to the bank and with draw your cash and put into the envelopes. Do not spend any money from your account until you withdraw it. This helps with keeping on track, but also making it way easier to keep track of your spending and how much to take out. I've made the mistake about not following my own rule and then regretted it.

3.Keep the envelopes at home! I cant stress this enough. I try my very hardest to not keep them on me. I think ahead before I leave the house. I plan when I go to the grocery store. If I don't have the money on me then its easier not to spend it unless I absolutely have to. There have been times when I haven't had my gas money on me and I've been SOOO very low on gas I barely made it home...

4. Once the money from that envelope is gone, there is no more. We struggle with this one since we like to eat out. Our weekly "miscellaneous" money we use for anything fun goes pretty fast, so I'm usually the one trying to reign us in when we want to go out to eat. *This is great for you people out there who struggle with spending too much on eating out*5. Constantly re-evaluate your budget every month. Plan ahead for any expenses you may not be expecting like car registrations, doctor bills, savings, or business trips.

6. Communicate, communicate, communicate. If you are single then you don't have to worry about this. Nathan and I are constantly talking about our budget and we create it together. Sometimes Ill create it, but I will always have a discussion with Nathan afterwards just in case he thinks we should plan it differently that time.

7. Save every receipt. Again, this is best if you are married. It keeps the trust in the spending. There have been times where the money wasn't there that we had planned for and because we had the receipts we could track what happened to it. At the end of the month you can also see how accurately you kept to your budget.

8. Create goals. There is nothing that feels better than seeing results. Our biggest goal has been paying off debt and putting money into savings. I cant tell you how many big ticket things we have been able to pay off this year because we worked at it! The savings part is still being worked on, but for the first time EVER, the words, "its not like we cant afford it" came out of my mouth. Felt so good!

9. Save whats left.Ill leave this one up to you about how you feel is best to do with what you didn't spend, but ultimately the best solution is to save the extra. Nathan and I usually split what is left or decide together what to do with it. Its usually not very much because we are really good about spending our money. ;)

Tips1. Get organized. I have a box like this I bought an an office supply store that is made for organizing. This holds my pens, dry erase pens, envelopes when they are at home, calculator, stapler, checks, etc. Everything I need is all in there so when I'm working on my budget its quick and easy.2. Buy a financial planner. I went to Target and boughtthis great financial planner I use. This has been awesome to keep track of the previous months, where I keep our old receipts, bills that come in, write on the calendar when bills are due. I can look back and see exactly what we spent money on and also see our progress.3. Give yourself time. Its taken us a whole year to finally feel like we are on track. We saw instant results by not overspending when we first started, but now we are finally seeing our goals come to fruition. It takes time and patience to figure out the exact budget, how to keep track of it all and to be diligent.Value in the dollar
I've learned from this budget system that using cash for everything puts more value on the dollar. I will think twice about what I really want to spend my money on. There is something different about handing over the dollar bills verses just swiping the debit card that makes you think more about the purchase. I don't know if you guys feel this way, but its almost like you have more control and freedom when you have a plan and stick to it then when you don't. Give it a try, and happy saving!